German Stability Programme
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German Stability Programme 2016 Update German Stability Programme 2016 Update Page 2 Content Page 3 Contents Page Preface to the German Stability Programme for 2016 ..........................................................................5 1. Summary ..................................................................................................................................................7 2. Aggregate economic conditions in Germany ............................................................................9 2.1 Aggregate economic conditions in Germany in 2015 ...................................................................9 2.2 Short- and medium-term outlook for the aggregate economy, 2016–2020 ........................9 3. German fiscal policy in the European context ........................................................................12 3.1 The rules of the Stability and Growth Pact and the Fiscal Compact and their implementation in Germany ................................................................................................................. 12 3.2 Fiscal situation and strategic direction ............................................................................................. 14 3.3 Fiscal policy measures on the expenditure and revenue side ................................................. 16 3.4 Implementation of country-specific fiscal policy recommendations ................................ 20 4. General government budget balance and debt level: projection to 2020 .....................22 4.1 Trends in general government revenue and expenditure ........................................................ 22 4.2 Trends in the government budget balance ...................................................................................... 25 4.3 Trends in the general government structural balance ............................................................... 27 4.4 Sensitivity of budget balance projection .......................................................................................... 28 4.5 Trends in debt levels .................................................................................................................................. 29 5. Long-term sustainability and quality of public finances ....................................................31 5.1 Challenges to the sustainability of public finances ..................................................................... 31 5.2 Government revenue and expenditure from a long-term perspective .............................. 31 5.3 Measures to ensure long-term sustainability ................................................................................. 32 5.4 Measures to increase the effectiveness and efficiency of public revenues and .................. spending .......................................................................................................................................................... 33 Page 4 Tables/Figures Tables/Figures Tables Page Table 1: Trends in the government revenue ratio ................................................................................ 23 Table 2: Trends in the government expenditure ratio ........................................................................ 24 Table 3: Trends in the general government balance ........................................................................... 25 Table 4: Budget balances according to government level ................................................................. 26 Table 5: Structural balance compared with actual balance and GDP trend ............................. 27 Table 6: Sensitivity of the projection for the general government budget balance .............. 28 Table 7: Trends in the debt-to-GDP ratio ................................................................................................. 29 Table 8: Forecast of macroeconomic trends ........................................................................................... 36 Table 9: Price developments- deflators ..................................................................................................... 37 Table 10: Labour market trends ...................................................................................................................... 38 Table 11: Sectoral balances ................................................................................................................................ 39 Table 12: General government budgetary prospects ............................................................................. 40 Table 13: No-policy change projections ...................................................................................................... 42 Table 14: Amounts to be excluded from the expenditure benchmark.......................................... 42 Table 15: General government debt developments (Maastricht debt ratio) ............................... 42 Table 16: Cyclical developments ..................................................................................................................... 43 Table 17: Divergence from previous update .............................................................................................. 44 Table 18: Long-term trends in age-related general government expenditure .......................... 45 Table 19: Technical assumptions .................................................................................................................... 46 Table 20: Contingent liabilities ........................................................................................................................ 46 Figures Figure 1: Gross domestic product, in real terms ...................................................................................... 11 Figure 2: Comparison of structural and actual fiscal balance (in % of GDP) .............................. 13 Figure 3: Change in the Federation’s structural deficit (in % of GDP) ........................................... 16 Figure 4: Gross capital formation, average annual increase from 2009 to 2015 ....................... 17 Figure 5: The structure of revenues and expenditures in 2015 ........................................................ 21 Figure 6: Debt impact of stabilisation measures taken in connection with the financial crisis and the European sovereign debt crisis ....................................................................... 30 German Stability Programme 2016 Update Page 5 Preface to the German Stability Programme for 2016 The member states of the European Union social security funds), the federal govern- submit their medium-term fiscal plans to ment is complying in full with its obligation the European Commission and to the Eco- for the year 2016 to submit national medi- nomic and Financial Affairs Council (ECO- um-term fiscal plans in accordance with Ar- FIN) by the end of April each year. To this ticle 4 of Regulation (EU) No 473/2013 on end, in order to comply with the rules of the the provisions for monitoring and assessing Stability and Growth Pact, member states of draft budgetary plans. the euro area submit updated Stability Pro- The Federal Ministry of Finance publish- grammes, while all other EU member states es the updated Stability Programme along submit updated Convergence Programmes. with the programmes for preceding years This update of the German Stabili- online at: ty Programme was approved by the feder- http://www.bundesfinanzministerium.de al cabinet on 13 April 2016. The programme The programmes of all EU member follows the Guidelines on the format and states as well as the corresponding Europe- content of Stability and Convergence Pro- an Commission analyses and ECOFIN rec- grammes (Code of Conduct). The feder- ommendations are published on the Euro- al government submits each update of the pean Commission’s website at: German Stability Programme to the com- http://ec.europa.eu/economy_finance/eco- petent expert committees of the German nomic_governance/sgp/convergence/in- Bundestag as well as to the Finance Minister dex_en.htm Conference (Finanzministerkonferenz) and the Stability Council (Stabilitätsrat). After re- view by the ECOFIN Council, the Council’s opinion on the Stability Programme is like- wise forwarded to these bodies. By submitting this updated Stability Programme, which contains projections of budgetary trends at all government levels (Federation, Länder, local authorities and Page Preface German Stability Programme 2016 Update Page 7 1. Summary By ensuring continuity and reliability, Ger- tio is expected to decline consistently and man fiscal policy is contributing to posi- to fall below the Maastricht limit of 60% by tive economic trends and stability in Eu- 2020. Germany met all of the other fiscal rope. The German economy is posting solid policy targets laid down in last year’s Stabili- growth, and the domestic economy in par- ty Programme and complied in full with the ticular is demonstrating robustness: wag- rules of the Stability and Growth Pact. es and employment are increasing appre- Nevertheless, German fiscal policy con- ciably, with total employment expected to tinues to face wide-ranging challenges. It re- reach 43.4 million on average in 2016 – a mains the case that fiscal policy continues new record. Fiscal policies targeted towards to benefit from exceptional circumstances growth-friendly consolidation have durably on financial and capital markets and must boosted consumer and business confidence therefore prepare for the necessary normal- in the economy’s